If Canadians didn’t have a $21 million home looking like the recently marketed Toronto pile Conrad Black, then that home had really fallen short. Filled with 11 bathrooms, 9 bedrooms and covering square feet of 23,000, not to mention a Bridle Path mansion and a coach house covering 2.6 hectares, Conrad Black is the ideal representation of what a million dollar home should look like.
Let’s give a brief hypothesis:
If one should perhaps take it that Canadian housing prices would continue to increase at its current pace- 17% since the previous year, based on the Canadian Real Estate Association- then it is probably safe to think or believe that Canadian homes will hit the $21-million mark in the next 24 years. Obviously, there will be pitfalls here and there and prices are not expected to go all the way up constantly. However, it is safe to assume, right?
Not to burst anyone’s bubble but we all know that maintaining a 17 percent increase in housing prices is not sustainable despite the benefit to homeowners because to think of it, prices would hit a double digit in about five years. The question to ask oneself is how the increase in prices would affect both the expectations of the homebuyer and homeowner.
Following the 15 percent increase in Toronto’s home value and 20 percent in Vancouver, you’ll be sure to see expectations rise as a result of the outrageous annual price. Of course, it may be silly to think that all houses would reach $21-million but if you should put in mind the fact that dilapidated teardowns are pushing their luck by hitting that seven-figure, then what’s to stop you from thinking that houses will reach a couple of million in a few years?
In the case of homeowners, the idea that their house could grab them some extra millions will definitely be enough cause for a celebration. Canadians have gone for some more money in their pockets by going for home equity loans.
Statistics Canada has released data revealing the amount of personal credit that has occurred with $270 billion in January, which is a $115 billion increase from a year ago and $30 billion in 2000.
As for the onlookers, no words can probably express their fear of missing out on the 17 percent annual price increase and the huge profit they could probably make out of their pocket. It would not be a surprise to see so many of them launch into the housing market to take part of the increase before houses become almost impossible to acquire, even if it means breaking their banks.
The National Bureau of Economic Research evinced the situation in Canada in a paper called “Speculative Fever: Investor Contagion in the Housing Bubble”.
In an attempt to measure the behavior causing the fast increase in housing prices, researchers from Duke and Georgia State universities took into consideration the United States housing bubble that occurred in the mid-2000s.
They targeted individuals who bought homes for investment purposes and tried to discover what influenced them to rush into house market, be it a change in buildings around them or a friend or neighbor venturing to invest in the real estate. The results highlighted a general mindset behind the high prices.
“Essentially any property that was sold after a relatively short holding period between 2004-06 would have resulted in a massive return for the investor and, thus, might have been especially attractive as a signal of potential gains for new investors,” the researchers stated. “We find that simply living near homes that are flipped also influences investment behaviour, especially during the periods of most rapid price growth.”
The paper displayed that the reason behind 11 percent of speculative real estate investments was as a result of ‘neighbourhood-housing-bubble contagion’.
It is impossible not to think that with the absurd rise in prices and the soaring of the housing market, that double-digit prices wouldn’t be the ‘IT’ thing in the future. By 2040, most people will probably put Bill Gates to shame… Probably. Just probably.